March 13, 2020
Interested in applying for an FHA mortgage or a refinance loan? It’s not as easy as finding a lender and applying; you will need plenty of time to save for the expenses of the loan including the down payment and closing costs.
But you also need more time in another way; taking a preliminary step as early as possible in your loan process can make the difference between loan approval and rejection.
What is that preliminary step? Reviewing your credit report for errors and identity theft evidence. It’s also about working on raising your FICO scores based on the results of your credit report review.
All Americans are entitled to a free copy of their credit report once per year, so there is no cost to obtain one. You can start working on your credit at any time and you don’t have to pay someone else to improve your own FICO scores if you know how to do it. (See below.)
Reviewing Your Credit Report: Timing Counts
If you are committed to buying your own house, pull your credit report as soon as you know that’s what you want to do. You will need all the time you can get for one simple reason: if there are problems with your report that need addressing, correcting the report is time-consuming.
It may take months to resolve. Pulling your report as early as possible gives you some insurance against having to rush through that process and hope for the best.
Your Repayment History Is King
Late payments and missed payments on any financial obligation are among the top reasons for low credit scores. If you have trouble making payments manually on time each month, set up automatic payments on as many of your accounts as possible.
Your lender wants to see at least 12 months of on-time payments, ESPECIALLY on rent or other housing-related costs. Anything less hurts your ability to qualify for a mortgage regardless of your credit score.
Don’t tempt fate; focus on your payment history and be aggressive about paying on time for best results at FHA home loan application time.
Down Payment
Worried about your ability to qualify for a mortgage or refinance loan? Knowing your credit needs work far in advance can help but there is one thing to keep in mind about your credit score–your lender won’t automatically disqualify you for a mortgage or refi loan just because your FICO scores are not perfect.
How does the lender justify approving your loan even with a lower score?
If your FICO scores in a certain range below “ideal” (determined by the lender’s standards as well as FHA guidelines) you may still get approved for a loan in spite of the lower credit scores.
What’s the catch? Your lender will ask for a higher down payment. You could be asked to pay 10% down instead of 3.5% down if your FICO scores are lower than the ideal range for what lenders call “maximum financing”.
The higher down payment can be challenging but the down payment issue can be managed.
You will have a much better time coming up with your down payment funds if you have a down payment grant program operating in your housing market. For borrowers with that as an option, the down payment factor is potentially far less of an issue.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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